Bloomberg News

Brazil Benchmark Rate Yield Declines on China Growth Concern

October 13, 2011

Oct. 13 (Bloomberg) -- Yields on Brazil’s most-traded interest-rate futures contracts fell on speculation that slower economic growth in China will cut into demand for commodities, helping curb inflation in Latin America’s biggest economy.

Yields on the contracts due in January 2013 fell one basis point, or 0.01 percentage point, to 10.45 percent, from 10.46 percent on Oct. 11. Brazilian markets were closed yesterday for a holiday. The real gained 1.4 percent to 1.7510 per dollar, from 1.7759 on Oct. 11.

The Standard & Poor’s GSCI Index of raw materials fell for the first time in seven days as China said its exports increased the least since February and the customs bureau warned of “severe” challenges. A slowdown in China would affect developing nations, worsening the global financial crisis, Brazilian Finance Minister Guido Mantega told reporters today in Paris.

“The external scenario is very uncertain,” said Alfredo Barbutti, an economist at Sao Paulo-based brokerage Liquidez DTVM Ltda. “The central bank should be more cautious.”

Trading in futures contracts suggests traders are betting Brazil’s central bank will lower the benchmark interest rate at least 50 basis points from 12 percent at its Oct. 19 policy meeting, according to data compiled by Bloomberg.

Policy makers unexpectedly cut the benchmark interest rate a half percentage point on Aug. 31 on concern the slowing global economy would crimp growth in Brazil. Central bank President Alexandre Tombini said last week that “moderate” cuts in borrowing costs will help shield the economy from the European debt crisis, without compromising the inflation target.

An index tracking Brazil’s economic activity contracted 0.53 percent in August from the previous month, the most since December 2008, the central bank said today. The median forecast of 13 economists surveyed by Bloomberg was for a decline of 0.4 percent.

--Editors: Brendan Walsh, Glenn J. Kalinoski

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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